Austin Realtors Advised to Protect Ourselves From Lawsuits

Sylvia returned from a Realtor Risk Management Course yesterday with all sorts of frightening and scary news. This was an MCE course (Mandatory Continuing Education) required to maintain her Broker’s License and the instructor was an attorney. After Sylvia rattled off the list of things we do that the attorney says we shouldn’t be doing, I couldn’t help but wonder what sort of industry this has become. This basic message from the attorney? – don’t be too helpful to clients or it can get you sued. I wonder how many Realtors actually follow this sort of advice and thereby provide less service to their clients because they are more concerned about being sued than they are helping people. I don’t buy it. We are Service Industry Professionals and should be, at all times, providing the best service we can to our real estate clients – even if doing so exposes us to a little more risk.

So what were some of the specific things the attorney said agents should NOT be doing?

The attorney at this Risk Management course says, as agents, we should stay completely out of the inspection process and leave it all between the Inspector and our Buyers. We should never refer the Buyer to just one inspector (even if we have a really good one we’ve always used), but should instead provide a list of at least three. Same with any other Vendor we refer – always give a list and never recommend just a single vendor. Under no circumstance, he says, should we do a walkthrough or even be present at the inspection. He says doing so opens us up to liability in case the Buyer later discovers defects that she thinks we should have noticed or “should have known about”, or thinks we referred a bad inspector, and then decides to sue us.

The attorney says our answer should always be “I don’t know” to questions such as “what sort of appreciation can we expect in this neighborhood” or “what has the appreciation been in this area the past year?” We should refer those questions to a third party source, according to the Risk Management Course, because if we offer an opinion that the Buyer relies on, and it turns out to be wrong, the Buyer might later sue us.

The attorney says we should always encourage Buyers to get a Home Warranty so that if an appliance breaks down shortly after closing, the Buyer will be covered and won’t be mad at us and therefore will be less likely to sue us.

Remember, this is an attorney teaching a Risk Management course, but my God!. Notice that, in an education course like this, it’s all about helping the agent avoid being sued. That’s fine, but the risk avoidance methods suggested are at the expense of the level and quality of service provided to the client. I know attorneys are paid to be cautious, but I have to disagree with this entirely.

At a time when the real estate industry is undergoing many changes, and the value of good Realtor services have become harder to appreciate, here we have agents, many very new, being advised in an MCE course to be do nothing, know nothing agents who offer services first and foremost designed to serve and protect themselves, not their clients.

The real estate industry needs to wake up and focus on providing value to clients, not liability protection for ourselves. The best liability protection any Realtor can have is to be competent and caring. Dumbing down the level of service provided to clients is going in the wrong direction. At all times the Realtor’s client should be able to benefit from the knowledge and expertise of the agent they’ve hired and know that the agent isn’t holding back on good advice just because they’re afraid of getting in trouble.

And yes, there are right and wrong things to say and not to say to clients. For example, we can never represent an area as being “safe”, or promise that an investor will make a certain amount of money on an investment. But a competent, experienced Realtor would never say those things anyway.

So, according to the Risk Investment course, what are Sylvia and I doing wrong that we shouldn’t be doing? What services are we providing that are inviting a lawsuit?

I personally attend every inspection and am right in the middle of the entire inspection and repair negotiation process, telling Buyers which inspection items are important to worry about, which ones aren’t, and what I think it will cost to remedy the important items.

We see dozens of inspection reports a year and are well equipped to place into context the common items found on inspection reports so that Buyers can make informed decisions about how to respond to inspection findings, and to try to negotiate on behalf of the Buyer the best remedies we can from the Seller during the repair negotiations process. I find ghastly the notion that an agent should dismiss themselves from that process for no other reason than to cover their ass(ets).

Market info and Appreciation
We also gladly offer our opinions and data about which areas in Austin are better to invest in than others, and what we think are reasonable assumptions to make when deciding whether Austin is a good market to invest in or not. I shiver at the notion that I should say “I don’t know” in response to questions about the Austin real estate market and where it’s headed. Clients expect a Realtor to be knowledgeable about the markets we serve. They expect us to share our opinions about market conditions. We are, after all, suppose to be real estate experts. How many Realtors use the slogan “your neighborhood expert”? – a lot do. So we should act like experts and allow our clients to benefit from that expertise.

Home Warranties
We tell our investor buyers that the Home Warranties are not beneficial to landlords in most instances, based on our many years experience owning and managing rentals and dealing with Home Warranty Companies. Most Property Managers won’t work with the Home Warranty Companies (we don’t) because they are inconsistent and hard to deal with. We’d rather work with trusted vendors whom we can hold accountable.

The problem is, 99% of Sellers give a Home Warranty away for free in the Sales Contract because the clause is built into the boilerplate language where it’s a no-brainer for the Buyer to ask for this. We have our investor buyers take the equivalent amount in cash at closing instead. The other thing most people don’t know is that the E&O Insurance companies provide less coverage and/or require a higher deductible on deals where a Home Warranty has not been purchased for the Buyer. This provides an additional incentive for Realtors to push the Home Warranty products even when it might not necessarily be in the Buyer’s best interest to have the Warranty.

So, when you hire a Realtor, ask them this. Ask “am I going to get 100% of your knowledge and expertise or are you going to hold back on me because you’re worried I might sue you?” Ask questions about the market – what’s it doing? Where is it heading? What areas are doing better than others? Ask if they have a trusted Inspector they can recommend over all others. If not, why not? Ask if they have a good vendor list in case repairs are needed. Will they attend the inspection and offer advice on how to respond to inspection issues? That’s part of what you’re paying for through commissions (as a seller) or built into the sales price (as a buyer). You shouldn’t settle for less than 100% of what you deserve.

3 thoughts on “Austin Realtors Advised to Protect Ourselves From Lawsuits”

  1. That’s just sad! The very services that separate a good realtor from a bad one are considered too risky. I’d still provide that advice. How the heck will the buyer every prove that I made a promise about expected appreciation rates (even though I’d never say something like that)? Or how can you prove in court that I only gave them advice to use just one lender and didn’t recommend they shop around?

    What Sylvia should have asked this lawyer is how such frivolous lawsuits actually come up in real practice.

  2. My office is really paranoid about lawsuits since there are a number of agents selling luxury homes. But if we can’t offer recommendation and sound advice then what good are we to our clients? The key is always document your stuff in a transcaction. I have my clients sign and initial a document called “Recommendations and Guidelines for Real Estate Transcactions.” we created at our office to cover ourselves in case we ran into a litigious client.

  3. In the medical world doctors that get sued and doctors that dont dont necessarily have different rates of error. It often comes down to relationships. Doctors with good bedside manners simply get sued less. If you have more than just a transactional relationship with clients then mistakes will be seen as just mistakes, not the basis for a lawsuit.


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